Last year, the Liquidating Trustee (the "Trustee") in the Midway Games bankruptcy began filing avoidance actions against creditors of the bankruptcy estate. Midway Games ("Midway" or the "Debtor") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware on February 12, 2009. For those not familiar with this bankruptcy proceeding, Midway developed and distributed video games throughout the North America, Europe and Asia.

On February 11, 2011, in a decision that represents a significant victory for institutional lenders and other proponents of capital market financing, Judge Alan S. Gold of the United States District Court for the Southern District of Florida (the District Court) issued a 113 page opinion overturning a $480 million fraudulent transfer judgment entered by the United States Bankruptcy Court for the Southern District of Florida (the Bankruptcy Court) against the so-called “Transeastern Lenders” in the TOUSA, Inc. (TOUSA) chapter 11 bankruptcy cases.i

In a thorough appellate decision, a United States District Court in Florida has reversed the portion of a Bankruptcy Court’s determination that the repayment of over $400 million in loans was a fraudulent transfer. As discussed in more detail below, the decision is significant in the context of complex, multiple entity structures in determining (i) which affiliated entity (or unpaid creditors of that entity) can recover a transfer and (ii) what constitutes reasonably equivalent value for the transfer.

The ability of a single asset real estate debtor in a bankruptcy case to utilize a non-consenting secured creditor's cash collateral has been limited by a recent decision from the Bankruptcy Appellate Panel of the Sixth Circuit in In re Buttermilk Towne Center, LLC, 2010 FED App. 0010P (B.A.P. 6th Cir. 2010).

The Internal Revenue Service (IRS) recently issued rulings regarding the availability of tax losses after a bankruptcy,1 the ability to take a loss under Sections 165(a) and 165(g),2 and the characterization of a loss after an ownership change.3 There are few rulings or other sources of authority for these types of issues, and thus, a review of these rulings provides insight into the IRS’s current thinking on the issues addressed.

PLR 201051020

Reprinted with permission from the March 18, 2011 issue of The Legal Intelligencer © 2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Over the last couple of years, the predominant goal in many business bankruptcy proceedings has been the sale of substantially all of the estate's assets. Such bankruptcy sales are often favored by buyers under Section 363(f), which enables a "free and clear" transfer of the assets.

In re Buttermilk Towne Center, LLC, No. 10-8036, 2010 Bankr. LEXIS 4563 (B.A.P. 6th Cir. Dec. 23, 2010)

CASE SNAPSHOT

A decision recently handed down by the Delaware Chancery Court, CML V, LLC v. Bax, indicates that creditors of a limited liability company (“LLC”) organized under Delaware law do not have standing to institute derivative suits against an LLC’s management, even when the LLC is insolvent, unless the right is expressly set forth in the LLC’s organizational documents or external agreements.

Background

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State Court Receiverships

In 2007, the Delaware Supreme Court issued an important ruling for creditors of insolvent corporations. It held that such creditors had standing to assert derivative claims for breaches of fiduciary duties against directors of an insolvent corporation.1 But, as the Delaware Court of Chancery recently made clear, there is a big difference between Delaware limited liability companies (LLCs) and their corporate cousins.